Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?

Restructuring & Insolvency

Italy Small Flag Italy

Recent reforms grant the possibility to obtain new financing as long as the borrower opts to attempt reorganisation through an In-court Settlement or a DRA.

Firstly, bridge finance granted in view of applying for In-court Settlement procedure or confirmation of a DRA will have administrative priority claim status if the following conditions are met:

  • the bridge loan cannot be used to pay existing debts or anticipate performance of the reorganisation plan.
  • the new finance must be expressly contemplated in the reorganisation plan.
  • its priority is sanctioned in the court order opening the In-court Settlement or confirming the DRA.

To incentivise intra-group bridge financing, administrative priority is afforded (up to 80% of the amount of the financing) to downstream and cross-stream intra-group financing that meets the requirements.

Second, during the interim period between filing the In-court Settlement or DRA and final court confirmation, the debtor can seek authorisation to receive new financing (which will benefit from administrative priority) to fund ongoing operations and the restructuring process. Authorization is given if an expert certifies that the financing is appropriate and will likely enable all creditors to have a better chance of being satisfied than without it. The court can also authorise the creation of security interests as collateral for the new finance.

Third, the debtor is entitled to ask the court (after filing an In-court Settlement but before submitting the plan, or during DRA negotiations) to authorize interim rescue financing on an expedited basis (providing a lender with an administrative priority claim) if it is needed urgently to carry on the company's business. The debtor must provide evidence that (i) there are no viable financing alternatives and (ii) failure to obtain the loan will result in imminent irreparable prejudice to the debtor.

Last, administrative priority is given to any new exit financing given under (or in performance of) a court-confirmed In-court Settlement or DRA.

Spain Small Flag Spain

The new money granted in the framework of a refinancing agreement, that accomplish requirements set forth in article 71.bis of the Spanish Insolvency Act, will privilege of a high priority of payment (50% of the amount will be satisfied as it becomes due (crédito contra la masa) pursuant to article 84.2.11 of the Spanish Insolvency Act and the remaining 50% will be considered a general privilege claim (crédito con privilegio general) according to article 91.1.6 of the Spanish Insolvency Act.

However, the new moneys privileges has certain limitations: (i) does not have a super priority in a liquidation scenario and it will rank junior to administrative expenses; and (ii) there are no priming liens over previous encumbered assets. In addition, the insolvency administrator could modify the term of payments with the judge approval which lead us to a high uncertainty to creditors and do not encourage such kind of creditors rescue. Notwithstanding the aforesaid, certain provisions could be established in the amended facilities to avoid potential risks in the repayment of the new money.

As previously stated, the Spanish Law does not provide a debt-in-possession financing and there is no incentives or privileges for granting additional financing during the in-court procedure. The entirety of the new financing claim would have the status of an administrative expenses but junior to certain expenses, as the labour law claims.

Japan Small Flag Japan

In both civil rehabilitation proceedings and corporate reorganisation proceedings, the debtor’s or the trustee’s right to borrow new money is subject to the court’s permission. The court will grant permission if the debtor shows that new funding is necessary to continue trading and maximise the value of the company’s business. The lender can collect its claim outside these proceedings as a common benefit claim. This places the new lender in a better position than prior unsecured creditors, but the new money funding will not have priority over secured creditors in respect of their secured assets.

Denmark Small Flag Denmark

A debtor in restructuring proceedings is not prevented from obtaining new financing.

A creditor does not automatically become better secured but he may be if a proposal to this effect is made in a restructuring proposal that is approval. The claim may also rank second in the order of priority in subsequent insolvency proceedings if the financing is obtained with the consent of the restructuring administrator officer.

Public loans obtained for the financing of employees’ salaries in the restructuring period will automatically rank second in the order of priority in any subsequent insolvency proceedings.

Australia Small Flag Australia

A debtor can obtain financing and otherwise use its assets as security in a scheme of arrangement and informal voluntary reorganisations. This is solely a matter for agreement between the company and its creditors. There are no special priorities given to new debt as of right and such priorities have to be negotiated and agreed with any existing creditors who already hold some form of priority.

Cayman Islands Small Flag Cayman Islands

Both official liquidators and provisional liquidators may obtain third party financing and grant security over the company's assets, subject to obtaining the prior approval of the Court.

In the absence of any security interest being granted to a lender, such lending will rank as an expense of the liquidation, with the lender enjoying a statutory priority over the company's unsecured creditors.

Switzerland Small Flag Switzerland

Yes, this is possible. The administrator's consent and in case of posting of collateral, court approval will have to be sought and, if granted, the claim for repayment of the financing party is granted a super-priority in the form of an obligation of the estate which will be satisfied ahead of all other claims. Administrators in Switzerland are generally rather reluctant to take out new financing, though.

Germany Small Flag Germany

After an insolvency petition has been filed, financing during preliminary proceedings is most often limited to a pre financing of the employees’ wages in order to continue business. Such financing is secured by the employees’ claims against the Federal Employment Agency, because the State will – if certain requirements are met – substitute their salaries up to a threshold amount for a maximum period of three months before insolvency proceedings are opened. The employees’ substituted claims are assigned to the State by operation of law.

If during (final) insolvency proceedings the administrator (or the debtor in self-administration) enters into a loan agreement and receives the loan, its repayment constitutes a liability of the estate, ranking after the court costs and the administrator’s fees, but ahead of the claims of unsecured creditors and must be paid in full, before unsecured creditors (other than those entitled to separate satisfaction) receive a dividend.

Further, an insolvency plan can stipulate that financing granted during the supervision period after an insolvency plan has been confirmed by the court shall have super priority status if the rescue fails and new insolvency proceedings are opened (Sec. 264 Insolvency Code).

Mexico Small Flag Mexico

Yes, DIP Financings are available under Mexican law with the prior approval of the Mediator or the Insolvency Court. DIP Financings are paid on a “super-priority” basis only after labor claims for salaries and severance for the calendar year immediately preceding the Insolvency Judgment, as described in our answer to Question 5 above.

British Virgin Islands Small Flag British Virgin Islands

None of the restructuring procedures specifically contemplate post-commencement financing; however, if a scheme or plan of arrangement is approved by the court and provides that the company may borrow, such funding may be obtained. The position is similar in relation to creditors’ arrangements; however, if financing is obtained without the consent of the creditors and/or members, it may be that this would found a claim for relief or other sanction.

Bermuda Small Flag Bermuda

In a liquidation, a permanent liquidator or provisional liquidator (unless his powers under the Companies Act have been restricted) can raise finance, including finance from existing creditors, to the extent necessary for the beneficial winding-up of the company. This is often advisable. Repayment of this finance depends on the negotiated terms which must be approved by the Court and which would usually take priority over existing creditors as a debt in the winding up.

Updated: April 27, 2017